Should CEOs have to reveal their pay?

A new regime would require specific disclosure of the chief executive's base salary. Photo / Getty Images

Chief executives of listed companies will have their salaries and reward schemes clearly published from next year, if proposals put forward by the NZX are adopted.

Another new measure would require NZX-listed companies to adopt policies to achieve a more diverse representation on their boards.

The proposed rules, released for consultation this week, have already been through one round of feedback and, while further submissions will be sought, they are expected to be implemented.

Both the enhanced CEO remuneration requirements and the diversity policy would be introduced as "comply or explain recommendations", which means NZX members would be required to disclose them in their reporting unless they could publish a reasonable explanation why they should be exempt.

As it stands the Companies Act requires listed companies to disclose the number of employees earning $100,000 or more in brackets of $10,000.

This effectively means shareholders, or media for purposes of investigations like the Business Herald's annual executive pay survey, are required to make assumptions about the salaries of chief executives.

Variations in the reporting of basic salary, bonuses and options, including the timing of payment, can further complicate that process.

The new regime would require specific disclosure of the chief executive's base salary as well as short-term and long-term incentives and the payment made each year.

These were the first substantive updates to the NZX's best practice code since 2003 and would catch up a lot of ground with Australia, said Geof Shirtcliffe, a partner at law firm Chapman Tripp.

"We welcome this as it is our view that New Zealand has been slipping behind in the governance area," Shirtcliffe said.

There might be some disappointment that the NZX hadn't proposed that boards should have a majority of independent directors, he said.

We welcome this as it is our view that New Zealand has been slipping behind in the governance area.

"We have long maintained that would be difficult given the small New Zealand market but note that the NZX has marked this as an issue to be addressed as part of a broader review later this year of the listing rules."

The diversity rules would require companies to develop a diversity policy, which "at a minimum should address gender diversity" but they would have leeway to customise that policy for their business.

Other recommendations for rules include the adoption of risk management frameworks on ethical behaviour and more transparent policies on continuous disclosure.

We have long maintained that would be difficult given the small New Zealand market but note that the NZX has marked this as an issue to be addressed as part of a broader review later this year of the listing rules.

The NZX stopped short of imposing ESG (environmental, social governance) reporting standards but has included them in the framework for boards to consider.

Hamish Macdonald, NZX head of policy and legal, said it was important to strike a balance that didn't overburden boards with compliance and to recognise the relatively small size of many NZX-listed companies.

Macdonald was confident, based on the high level of feedback and engagement so far, that the balance was about right.

However, there was an opportunity for more feedback to fine-tune the proposals.

Further submissions are being accepted until October 14 with final approval, including sign-off from the Financial Markets Authority, due before the end of the year so that the new rules could apply for the first quarter of 2017.